Because a non-investment-grade rating implies greater risk of default, investors will demand higher interest rates to take the chance. In addition, some institutional investors, such as pension funds, cannot hold junk bonds and will be forced to sell.

Mark Oline, Fitch's managing director of corporate finance, cited some of the same reasons as S&P for its downgrade, including a 26 percent decline this year in sales of large sport-utility vehicles, GM's most profitable models.

Asian rivals are moving into GM's traditional stronghold, large trucks, and GM has yet to address its escalating health-care bill and other fixed costs, Oline said.

"We've seen a lack of progress on the structural cost side," he said, adding that Fitch gave a negative outlook to GM, meaning it could receive another downgrade in the next few months if conditions deteriorate.

Fitch estimates that GM will spend nearly $6 billion more than it takes in this year. However, the automaker has nearly $20 billion in cash, making a bankruptcy filing unlikely for the foreseeable future.

Analysts also don't see GM needing to borrow much in the near term.

"GM hasn't been borrowing, and it doesn't have significant debt maturities coming for years," said Burnham Securities analyst Dave Healy.

About $3.5 billion of GM's debt is scheduled to mature by 2010. Its long-term debt totaled $292 billion at the end of the first quarter, the largest amount to fall to junk level in history. WorldCom Inc. had $30 billion in debt in 2002.

GM said that it was disappointed by the downgrade and that it is moving aggressively on issues Fitch cited.

"We have a strategy, but it will take a while to implement," spokeswoman Gina Proia said.

GM has said it is counting on new full-size SUVs due in early 2006 to boost sales and profits. But Oline expressed caution. "They're bringing new products into a shrinking category," he said. "They could have a solid [financial] benefit, but it probably will be more muted than we expected six months ago."

Analysts said investors anticipated that GM would fall into junk status before S&P's downgrade May 5 and many sold GM bonds before then. A downgrade by Fitch or Moody's Investors Services, the other major credit rating agency, also was expected.

"Rating agencies follow the leader, and I would have been astonished if they didn't follow the initial move by S&P," said Healy. Moody's has a negative outlook on GM and rival Ford, which S&P also downgraded to junk, along with GMAC and Ford Credit. But none is under review for a possible downgrade.

"As we watched our credit rating go down, we tried to anticipate the worst-case scenario," GM spokeswoman Toni Simonetti said. "GM did a lot of borrowing a couple of years ago at very favorable long-term rates so there's not the need to be out there in the [bond] market right now."

On Thursday, Fitch lowered Ford and Ford Motor Credit to BBB, two notches above junk, with a negative outlook. Oline said Tuesday that Fitch thinks Ford is in better shape because it diversified its vehicle offerings to depend less on large SUVs, plus it has lower fixed costs.

With two ratings agencies calling GM junk, its bonds will fall out of investment-grade status in the Lehman Brothers Credit Index, a closely watched guide used by institutional investors that will average the ratings from the three agencies starting July 1.

Healy doubts that will trigger a sell-off of GM bonds.

"That development had been anticipated and won't have much of an effect on GM bond prices," he said. "GM debt was selling at low junk rates already."

GM's 8.375 percent bonds due in 2033 fell 2 cents Tuesday, to 73.625 cents on the dollar with a yield of 11.6 percent. GM's shares fell 90 cents, to $31.69, Tuesday on the New York Stock Exchange.

"Most people had resigned themselves that they would see a downgrade," said Craig Hutson, senior bond analyst with independent research firm Gimme Credit. "But this downgrade is unprecedented in its size. We don't really know what will happen" to GM or the markets in general.

"GM's got to right the ship. They have to address a number of issues to address the stability of the business, including their uncompetitive cost structure," Hutson said.

If the United Auto Workers union doesn't make major concessions on health care and other costs, Hutson said "the downward trend will continue."